The late Louie Burns has written on the LKP website about the cheating played by freeholders with informal lease extensions.
Here he turns his attention to the minefield of dealing with your freeholder to get a formal lease extension.
Leaseholders have a legal right for a lease extension of an additional 90 years with zero ground rent.
Unscrupulous freeholders, their solicitors and surveyors seek to frustrate this by introducing every conceivable delay and complication.
They use their professional expertise to obtain unethical financial advantage over those who are simply trying to secure the future of their home, which happens to be leasehold tenure – that is unique to England and Wales.
Leaseholders and their advisors should complain to the SRA and RICS, and politicians via LKP, about professionals engaging in unethical practices.
It is important that these solicitors and surveyors, whether individuals or practices, become very well known. LKP patron MPs have named a string of leasehold game-players in the House
As the MD of Leasehold Solutions [this company no longer exists], which carries out the most lease extensions per year on behalf of flat owners, I oversee the extension of thousands of leases each year.
It is truly nauseating to see multi-millionaire freeholders regularly use unfair advantage and deficiencies in leasehold legislation as weapons to wring even more money from unsuspecting flat owners.
This is intended as a leasehold flat owner’s guide to some of the main tricks used and also give some tips on the best ways to counter them.
Trick 1: The freeholder’s counter offer will be huge!
Why is it unfair?
You must legally make an opening offer for the cost of your lease extension and your offer has to be ‘reasonable’. Freeholders do not have the same limitations when making their counter offer, it can be as big as they like! It is often a disproportionately large amount.
It is an unethical ploy.
Why do they do it?
Firstly, they hope it will be so shocking compared to the amount your valuer told you to expect to pay that you will withdraw from the transaction altogether.
If that ploy fails, their second hope is that it stretches your expectation of what the final amount is that you will have to pay.
Thirdly, you may often find that an offer of an informal lease extension directly follows a high counter offer. (Click here for my full rebuttal of informal lease extension offers)
How can you counteract it?
I see many people, who are not necessarily clients of ours, become very upset and agitated when they receive the counter offer.
The way to counteract it is to expect the counter offer to be ridiculously high and completely ignore it when it arrives as it is 100% stuff and nonsense.
Also, DO NOT accept their offers to negotiate the lease extension informally.
LKP: Read about £250 a year ground rents becoming £8,000 a year here
Trick 2: Freeholders completely ignore the flat owner during the six-month period of negotiation.
Why is it unfair?
During the six-month period of negotiation in the statutory time frame of a lease extension, the cost of the lease extension and the terms of the lease MUST be agreed.
If not, flat owners have to pay to make a protective application to the First Tier Tribunal of the Property Chamber to extend this time frame or lose their legal right for a lease extension.
If the latter were to happen, flat owners would have to wait 12 months before they could start the lease extension process again and they would be liable for all abortive legal and valuation fees for both sets of solicitors and valuers.
The flat owners must pay to make this application regardless of the fact that the delay may have been purposely caused by the freeholder!
Why do they do it?
It is pure bloody-mindedness as freeholders know the flat owner will have to pay these additional fees and they will never be charged or brought to task for acting in such an unreasonable way.
It is a way of punishing flat owners for daring to want a lease extension and letting them know that the future negotiations will be brutal for them.
How can you counteract it?
Negotiate how much your solicitor will want for them to serve an FtT protective application on your behalf, BEFORE you agree to use that particular solicitor.
You will get the work involved in the application much cheaper by negotiating while the solicitor is quoting upfront to get your new business than as opposed to this arising once you are a client of the solicitor.
If possible, try to extend your lease at the same time with as many of your neighbours as possible and negotiate group discounts with your proposed solicitor and valuer.
Trick 3: Freeholders refuse to enter into negotiations on statutory lease extensions; instead they try to bully the flat owner into accepting their ‘easy’ informal offer.
Why is it unfair?
You have a legal right for a lease extension of an additional 90 years with zero ground rent. Freeholders try to distort this right by making the statutory route seem so difficult and fraught that the ‘informal’ route seems the easiest or only option.
Why do they do it?
If you extend your lease by way of your statutory right the freeholders lose their investment, your flat, and their chances of making even more money from you.
If you fall for their trick and accept the informal offer, they will make an absolute fortune from you in the future for decades to come.
How can you counteract it?
Don’t accept an informal lease extension offer, even if your freeholder is telling you to accept it.
Trick 4: Freeholders try to include new terms into your lease, which hugely favour their own interests.
Why is it unfair?
Your freeholder does not have a legal right to insert new clauses into a lease during a statutory lease extension. They try to sneak them in by ensuring the new lease is sent back to your solicitor very close to the statutory deadline.
This means your solicitor will have to inform you that if you do not accept the terms inserted you will have to pay court fees.
Why do they do it?
For a variety of reasons. In the case of new licences they insert, they want to make more money from you.
They may try to insert new terms relating to the recoverable court fees through service charges. This could mean that if you sue them in the future (even if you win!), they can add their legal fees onto your service charges. LKP’s report of the Dennis Jackson case, where a 73-year-old man had his £800,000 Battersea flat forfeited over a £7,000 service charge dispute, plus £80,000 in legal fees, is a horror story:
They will often include new terms that relate to breaches of lease terms and what actions they can take. Here they want more power over you, the ability to charge more fees and a better chance of getting forfeiture of your flat.
Are these new terms that they are trying to unfairly insert in your lease important? You bet!
How can you counteract it?
As with Trick 1, you negotiate the fees for these applications with your chosen solicitor before you agree to give them any work.
If possible, extend your lease at the same time as a neighbour or a group and negotiate a group discount beforehand.
Instruct your solicitor that you will not accept onerous terms included in your lease.
If you go to the FtT to fight these inclusions you will win outright, as your freeholder is breaking the law by including them in the first place. They will never want to attend the FtT to argue their right to include new terms.
They are just trying it on.
Trick 5: The cost of the lease extension
Why is it unfair?
The freeholder is entitled to receive the combination of ground rent, reversion and marriage value, as set down by law, as the ‘fair cost’ of a lease extension.
However, they will often add a fourth element of the valuation; that is, how much it would cost you to take them to the FtT to argue the much higher costs they have settled on, refusing to negotiate further.
This unfairly revolves around the fact that the flat owner will have to pay to challenge an unreasonable freeholder and the costs of doing this are considerable.
Why do they do it?
To make more money from you.
How can you counteract it?
Extending your lease at the same time as your neighbours is one of the few counter measures to this unreasonable action from a freeholder. Ensure that you have negotiated group discounts for multiple applications.
If you are not part of a group, it is tougher but encourage your valuer to keep negotiating and keep the lines of communication open with your freeholder.
It can sometimes work to bluff the freeholder into thinking that you are happy to attend the FtT on a point of principle, as no one wants to actually attend the FtT – it is just a big bluff.
Trick 6: Absurd Section 60 costs!
Why is it unfair?
The flat owners have a legal obligation to pay the ‘reasonable’ legal and valuations fees incurred by the multi-millionaire during this process. These are the freeholder’s Section 60 costs.
Many of the professionals who work for the freeholder view this as a free hit and charge the flat owner far too much for their services.
Another shameless trick perpetrated by the valuer who works for your freeholder relates to his own fees. The valuer may only agree on the cost of the lease extension if you first agree his personal, much inflated fee for the work he has done. That way he ensures he will be paid handsomely for his couple of hours of work.
This one disgusts me to the core; not only are they being pig greedy, but they are selling out their own client for their personal gain. Nice! (To see how to get over this trick, read to the end)
Why do they do it?
Simply put, it is pure greed. This is considered one of the benefits for representing the freeholder for professionals, i.e. the chance to charge what they want for their work.
Furthermore, the nastier valuers and solicitors become when they represent freeholders, the better a chance they have of getting more work from them, and hence the tricks I list in this article.
How can you counteract it?
Always challenge Section 60 costs! It is a written challenge that needs to be submitted to the FtT by your solicitor, so generally no one needs to attend the court.
Be aware that challenging Section 60 costs is not always a popular thing to do for some solicitors, as they could find themselves on the opposite side of the fence a week later.
Some solicitors are afraid that their arguments of this week could be used against them next week, to reduce their own fees.
Obviously, neither you nor I should be concerned about this. A solicitor’s duty of care is to get the best possible deal for their client – you! It may be prudent to clarify with your solicitor when you are looking to engage them that you will want them to challenge unreasonable Section 60 fees as part of the transaction.
How to deal with the solicitors and valuers of the freeholder.
I can tell you, from personal experience, that many (but not all) of the professionals who represent the major freeholders are awful, amoral people.
They will, however, argue until they are blue in the face that they do not do anything illegal but it is in fact the flat owners who are the problem by daring to want a lease extension in the first place.
Well, here is a little-known fact. You have a legal right to complain about the freeholder’s solicitor and valuer if you have evidence that they have not acted honourably.
You may also be very glad to know that it is a very big deal when you complain about a solicitor or valuer to their professional bodies!
For valuers, click here and complain directly to the RICS about the actions of the valuer. The RICS has a code of ethics which state: ‘Members shall at all times act with integrity and avoid conflicts of interest and avoid any actions or situations that are inconsistent with their professional obligations’.
For solicitors, their code of ethics state that they must: 1 Uphold the rule of law. 2 Act with integrity. 3 Not allow their independence to be compromised. 4 Act in the best interest of each client.
If you feel you have not been treated fairly, you will firstly need to trigger an internal complaint for that solicitor. Solicitors have to take this very seriously indeed and will probably inform their PI insurers too. The PI people become a time-consuming nightmare for solicitors.
If you are unhappy with the result, you can complain directly to the SRA by clicking here.
Conclusion
Many will be disgusted by an industry and ‘professional’ advisers who behave like this.
A raft of tricks is being adopted to gain inequitable, dishonourable and immoral advantage over flat owners.
I wish I could say the above is a definitive list of the appalling practices in lease extension, but, sadly, it is not! I didn’t want to write a ‘how to be a bastard freeholder’ guide here, so I have focused on the most often used tricks.
I genuinely hope the above information will help you when you are extending your lease.
To be forewarned is to be forearmed.
The above text is from a (very unpopular) speech I gave for the Leaseholder’s Valuers Forum at the Law Society on November 12 2015.
Louie Burns can be contacted at Leasehold Solutions, which is based in Croydon.
